Inside Asian Gaming

January 2009 | INSIDE ASIAN GAMING 35 Operator Outlook SJM will also operate a franchise casino at the L’Arc Macau, a property on the Macau peninsula opening in the first half of 2009. The casino, hotel and residential project is being jointly developed by Dr Ho’s wife, Angela Leung, and International Entertainment, a company listed on Hong Kong’s alternative share index known as the Growth Enterprise Market (GEM). International Entertainment is controlled by the family of New World Development chairman Cheng Yu. SJM is also developing Oceanus, a HK$1.1 billion SJM owned-and-operated casino on the site of the former New Yaohan department store opposite the Macau Maritime Terminal on the peninsula. Oceanus will be opened in stages, with 300 mass-market gaming tables available by the end of 2009. In a recent report on SJM’s prospects for 2009 and beyond, Deutsche Bank analyst Karen Tang was generally upbeat. “By 2010, SJM should have opened five new projects. We forecast that these properties will generate HK$2.2bn EBITDA by 2010, based on 17% market share with 14% EBITDA margin,” she says. “Grand Lisboa has proven that, under new management, EBITDA margin at new properties can be substantially higher than at legacy casinos (1H08: 18% vs. 2%),” she adds. Deutsche Bank says that even though in 2009 SJM’s share of total Macau casino revenue may fall below 25% for the first time ever, it expects the launch of new products will help SJM claw back share to around 23% in 2010. Ambrose So, SJM’s chief executive, is confident the company can square the circle of expanding operations while at the same time controlling day-to-day costs. One way to achieve this is to transfer existing staff to new sites as they are opened, rather than recruiting new people. Mr So said the recent troubles experienced by competitors in Macau were because some had “over-leveraged, over- borrowed and over-projected the market”. Mr So and his boss certainly have long experience of operating in the roller coaster world of the south China economy, with its potential for rapid boom and equally rapid bust. It’s possible this may have given them an edge over some of their foreign rivals when it came to anticipating the downside of the Macau gaming market. Ms Tang of Deutsche Bank says: “SJM has a long-serving senior management team that has substantial experience in the management of casinos, and local connections inMacau. Strongunderstanding of local culture and customer preferences will be advantageous when formulating business strategies in a fast-changing competitive landscape.” She adds the company has also brought in new executive blood in the last few years from Macau and beyond, and this may also help maintain its position in a highly competitive market. “Since 2006, SJM has expanded its strategic and operational management team through an additional 150 experienced personnel,” says Ms Tang. “Many of them have held senior positions in other casinos in Macau or overseas. For example, Frank McFadden, President of JV and Business Development, was formerly COO for Venetian Macau Ltd. Similarly, John Catt, Tim Gilbert, and Lindsay Stewart, who are now overlooking public relations, table games, and slot machines, have all previously worked for Sands or Venetian Macau Ltd. We believe that the new blood will bring industry best practices to SJM, and help improve operating efficiencies.” The truth about SJM’s good positioning following2008’smarketturmoilmayinfactbe moreprosaicthanMrSoandMsTangsuggest. At least some of SJM’s modest exposure to global financial markets is probably due to what American commentators call ‘dumb luck’. The company was originally very keen to raise money via an initial public offering. The fact it only managed to raise around half of the cash the markets had been hoping for actually led some analysts to mark down the company’s stock during the summer. If SJM is to capitalise in 2009 on its own good fortune and the hard luck of some of its rivals in 2008, it will certainly need shrewd leadership. A hotel room at the Grand Lisboa Advertise with Inside Asian Gaming For advertising enquiries, please email: ads@asgam.com or call Matt at: +852 95797383